Even politicians have noticed that there’s a bit of disquiet about the ongoing transfer of the nation’s wealth from the young to the old, the poor to the rich, that is the “housing market”. But they don’t want to piss off the boomers who’ve spent a decade and a half addicted to the sweet sweet heroin of low-taxed investment properties, paid for by ever greater numbers of struggling young people locked into permanent renter status. But you can’t take baby’s toy away – he’ll scream and scream until he’s sick. So, try to undo the damage – reduce the huge CGT incentives for those with equity in an existing home to use the housing market as an investment tool, the costs of inflated prices being passed on to the generation who can’t possibly hope to beat them at auction? We can’t do that! That would make a lot of greedy boomers – those who can’t see past their own unearned property-based wealth – very angry.
So this is what we get instead of real change:
Crackdown to help first-home buyers
THE federal government has admitted its new crackdown on foreign investors is an acknowledgement that Australian first-home buyers are being priced out of the market.
The tightening of foreign investment rules require temporary residents to be screened and get permission from the Foreign Investment Review Board to buy a property, sell their property when they leave Australia and build on vacant land within 24 months or sell.
There have been anecdotal claims of foreign investors – especially wealthy Chinese families – ‘stockpiling’ Australian houses and leaving them idle, and of outbidding young people at auctions.
Easy politics: look like you’re doing something by bashing those who can’t vote. (Although not all that helpful, because the Liberals can for once honestly say “that was our policy in the first place”.)
But let’s be clear: foreign investment is not the reason why the market has got so out of control. (That’s why they can only mention “anecdotal claims”.) Rather, the other way around: with Australian city house prices inflating well ahead of any other investment, no wonder investors from everywhere have rushed to get a piece of that action. And those prices have been inflating ever since Howard’s late nineties bribes to the building industry to make up for the GST: halving CGT and the first home buyer’s grant.
So, a couple of points:
- As long as capital gains tax – tax on income that you don’t actually do anything to earn other than sit on something of value, like a property – is less than income tax, investors will push the prices of houses up beyond what actual new home-buyers can afford. CGT needs to be comparable with income tax, so that ordinary workers are not further subsidising the lucky people with property.
- The first home buyer’s grant needs to disappear completely – it only inflates prices beyond its value. It was always a very poor piece of policy that transferred public money away from the young and to those who already owned investment properties;
- Increasing land availability won’t solve the problem while investors still flood the market – they’ve still got a disproportionate amount of money to spend, and will;
- We do need to encourage the building of new homes, rather than the fighting over existing ones – but this will not solve the problem by itself. Population growth, which has been gradual over the period, did not propel this boom – flooding the market with investors did.
- If we don’t somehow burst the bubble, we will have a generation that simply cannot buy a home, unless they’re in the very top tier of earners or they inherit property. We will have an unprecedented divide between the rich and the poor in this country;
- Crime rates will rise – owning property is one thing that greatly reduces a person’s propensity to engage in crime. It gives a person something to lose. It gives a person respect for the value of property. It is a massively stabilising effect on a population. Take that away, leave increasing numbers of people in homes they don’t own, over which they have no control, that they can’t upgrade, out of which they could be kicked with three month’s notice, with ever increasing rents, and what do you think will happen?
- Homelessness will also rise. The increased rents also mean that, without dramatically increased welfare payments, we’re going to have an ever-growing homeless problem. Centrelink payments simply won’t cover renting anywhere near a city – expect crimes of desperation to get out of hand. Law And Order politicians will respond by locking them up – we’ll have to build more prisons, at great public expense and injustice, and it will become ever more dangerous to walk the streets of our cities.
- The inflated property market might make homeowners think they’re wealthier, but it’s not money they can use (except to take out another loan) – in fact, they’re punished with higher rates. The only people who really benefit are those with more than one property, and those inheriting property. And they do so at the expense of everyone else.
- The more out of hand the problem gets, the harder it will be to solve: you can’t push prices back without really screwing over those young people who just took out enormous mortgages to buy a small shack in a swamp in remotest Cranbourne – and it’s not like all that pretend money that’s floating around on people’s rate certificates is actually available to them to use. And of course, the financial industry has locked itself in, to great advantage, but if prices were to fall they’d immediately call it a financial crisis and demand that we, the public, bail them out again. It’s going to be a long, slow road fixing this mess. And the first step is raising CGT, so that it’s not less than income tax: the existing system penalises those who work for a living as against those who sit back and just sit on property. It should be the other way around.
- Australia’s birth rate will decline, as the Houseless Generation finds itself in increased poverty, unable to find any security in housing and unable to find housing adequate for raising a family. Couples will put off having kids till even later, and will consequently have fewer of them.
- Existing home-owners who got themselves on the ladder in time and don’t care about anyone else’s family should consider this: do you want your kids living with you ’till they’re 40? They’re not going to have much choice.
I think this is one of the most critical issues facing Australia today. And none of the major parties have the slightest interest in doing anything about it – they’re too busy pandering to boomers’ fears about SCARY IMMIGRANTS. The Liberals under Howard gave us the problem in the first place – and the ALP is too gutless to actually tackle it in any meaningful way. My fear is that by the time the Houseless Generation becomes a powerful enough voting force to be listened to, it will have absorbed the status quo as The Way It Is, and be so resentful that it will resist giving the next generation any easier a time than it had. And we’ll be stuck with this fundamentally broken model, and poisoned society, forever.
It’s a crisis, no doubt about it.
UPDATE 27/4: Tim Colebatch in Tuesday’s Age:
the Rudd government last week reversed its 2008 liberalisation of foreign investment rules on real estate, and set up a unit to ensure the rules are obeyed. It also set up a joint working party with the states to ask why housing prices have soared out of reach. But that will work only if it tackles the single biggest cause: the tax-driven growth of rental investors, whose borrowing has grown 30-fold in 20 years, squeezing out home owners.